China's silk road strategy: the opportunities and pitfalls of 'killing three birds with one stone.'.

• Author: Lo, Chi

China's "New Silk Road" strategy, also dubbed the "One Belt, One Road" project, is a political and economic strategy conceived to kill three birds with one stone by achieving long-term international, domestic, and political objectives. Internationally, implementation of the New Silk Road strategy will unleash a regional infrastructure boom by connecting China with Asia, Europe, and Africa by land and sea, and boost renminbi internationalization by encouraging its use in both trade and financial transactions. Domestically, it will help export China's excess capacity, which should enhance investment returns and stabilize growth. Rather than a means of reviving China's excess investment, it is a medium-term step to help rebalance China's economy via consumption-led growth. Politically, Beijing is using the OBOR project to secure foreign trade relationships in response to some major trade pacts that have excluded China.

It is also evident that through the New Silk Road strategy, Beijing is developing a coherent set of policies to realize President Xi Jinping's "Chinese Dream," in which he seeks to combine national and personal aspirations to "reclaim national pride and enhance personal well-being." In economic terms, this amounts to creating incentive compatibility between the state and the people to maximize national and individual interests. However, the potential risks to China associated with the New Silk Road strategy are not negligible.

China's New Silk Road strategy borrows the concept of the historical Silk Road connecting Chang'an (now Xi'an) in the east to the Mediterranean in the west. It is President Xi's strategic plan to connect Asia and Europe by investing in infrastructure projects to enhance trade and cultural relations, supported by vast financial resources, including a US$40 billion Silk Road Fund, the US$100 billion Asian Infrastructure Investment Bank, and the US$50 billion New Development Bank.

There are two elements in the OBOR project. "One Belt" refers to the "Silk Road Economic Belt," which starts from Xi'an and passes through major cities including Almaty, Samarkand, Tehran, and Moscow before ending in Venice. It plans to build roads, railways, and gas pipelines across central Asia to Europe. "One Road" refers to the "21st Century Maritime Silk Road," which begins in Fuzhou and links major coastal cities including Hanoi, Jakarta, Kuala Lumpur, Kolkata (formerly Calcutta) and Nairobi before joining the Silk Road...